When does the GFOA recommend governments prefund their OPEB obligations?

The Government Finance Officers Association (GFOA) recommends that governments should prefund their Other Post-Employment Benefits (OPEB) obligations once a significant long-term liability has been incurred. This approach is crucial for ensuring the sustainability of a government’s finances and its ability to meet future obligations.

By prefunding OPEB, governments can build a reserve of funds dedicated to these benefits, which helps mitigate the financial impact of the liabilities over time. As liabilities grow, the associated costs can become more burdensome; therefore, addressing them proactively is essential. By taking action when a substantial long-term liability is recognized, governments can manage financial risk better and avoid sudden funding crises in the future.

The other choices do not align as closely with GFOA recommendations. For instance, saying governments should prefund "when the budget allows" is too vague and does not emphasize the importance of the timing tied to the liability. Suggesting annual contributions on a specific anniversary doesn't consider the actual financial obligation timing, and stating that prefunding occurs "only if required by state law" overlooks the proactive financial management philosophy the GFOA advocates.